In a good economy, claims against performance and payment bonds can be minimized as bonded contractors, who must personally indemnify the surety company, risk using funds from one project to fund one having cash-flow difficulties.
However, what happens when fewer or, in some cases, no projects are being let by private developers or governmental agencies? Where is the cash flow going to come from to support projects where the contractor needs the cash? What happens if there is no new cash flow?
The answer is that there will be a rise in defaults by contractors on existing contracts.
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